$550,000 and rising

Labour leader David Shearer has conceded his party’s affordable housing policy will only be able to deliver small apartments or terraced housing in Auckland for the $300,000 price tag – while standalone family homes are more likely to cost up to $550,000.

He can’t blame that on inflation, it’s his party’s own fudged figures.

We built a three-bedroom, one bathroom house with a lean-to car port for dairy staff for $180,000 last year and a three bedroom, two bathroom manager’s house with a double garage for $280,000.

That leaves $120,000 for a section for the smaller house which wouldn’t be difficult in small towns but wouldn’t buy much in Auckland.

You’d be in the likes of Ohai before you’d find a $20,000 section for the bigger house.

After his speech yesterday Mr Shearer said the $300,000 figure Labour had quoted was the average price of KiwiBuild homes nationwide rather than applying to every house under the scheme. “In some places it will be more.”

But the housing affordability isn’t a nationwide problem it’s mostly an Auckland one.

Labour’s plan does nothing to address the cause of that which is the availability, and therefore price, of land.

That is why National’s policy addresses the high cost and lengthy time some councils take to process consents for new developments.

“They are apartments, they are terraced houses. For a three- or four-bedroom standalone house it will be more.”

He said three- and four-bedroom standalone homes were “of a different ilk” and a lot of the homes built in Auckland would be two-bedroom apartments or terraced housing.

Isn’t Labour also concerned about overcrowding? How many families do they expect to fit on two-bedroom apartments?

This is typical of Labour to promise much, spending our money, to benefit a lucky few, neither helping those most in need nor addressing the cause of the problem.

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We bought our first home when my husband and I were aged 26 and 22 respectively. We only had a 10% deposit, but my annual salary alone was nearly half the purchase price less deposit and our combined annual income was more than 1.5 times the purchase price. Like now, National was in government.

However, despite being employed in a secure public sector job and very well paid for my age, and my husband (to be) having been successfully self-employed for several years, and both of us having excellent credit histories, the bank did not want to lend us the money without a guarantee from our parents (which neither set was willing or able to give). That was bizarre given that we had both been financially independent from our parents from the age of 16.

You can’t buy a house without a mortgage, so after much persistence the bank finally agreed to the loan. But only on the condition that we take it over a short term – 8 years! There are two reasons why it was so difficult:

1. People doing well in life at a young age are not celebrated in NZ and in fact were (and still are) viewed with suspicion, mistrust, and sometimes disgust.

2. Interest rates at the time were rising rapidly. Soon after, the floating mortgage rate reached about 11.5%.

We fixed our rate at the start of things for five years at 8.5% and that was cheap. The loan was paid off before the fixed-rate contract expired. The high rates never hurt us, but we saw plenty of others who were in strife.

In comparison, today it is not hard to buy a house. Imagine if a couple in their early 20’s presented to a bank with the following:

– A photograph of a $300,000 house (what our old house is worth now)
– Deposit of $30,000
– Combined annual income of more than $450,000

Would they have any difficulty securing a loan to purchase the property? Most likely not.

They can get a loan easily nowadays because the interest rate risk is low. If interest rates rise, the risk is higher and the next problem will be banks not willing to lend money to some people. To you know who, the young tall-poppies who are our future job creators.

Interest rates need to stay low for quite a while to let incomes catch up a bit. If interest rates do rise, the supply of homes for sale will increase and that should bring the prices down, you bet. But banks will get tougher. Yet that can be mitigated by a change in attitude to one that says we can trust young go-getters to do well in business and also by making sure that people’s jobs are secure above all else. That means fostering a business-friendly environment. And it all takes time.

Presumably, most people in NZ at this moment have a home to live in somewhere. Maybe not perfect, but neither was our first and nor is our second. The problem is really not that there isn’t enough houses, but that there are not enough on the market at the moment.

It is hard to see how Labour’s housing policy will make a significant difference to that. At most it will only result in an extra 10,000 homes or so on the market each year. That would be an increase on 2012 sales volumes of 13.5%. That’s not much, and will go unnoticed by the market. To illustrate, the increase in sales volume between 2011 and 2012 was 21% and that has not helped lower house prices.

A capital gains tax will only have a temporary effect as investors sell up and take their gains before the tax comes into effect. That is short-term thinking in the extreme, because it will only result in a minor blip in house prices, if that.

What we should be doing is helping people improve the home they are in. Like reducing red tape and costs for home improvements such as; gutting the place, building on another room, adding another level, garage, or a deck. Maybe even providing some home improvement incentives. But it is definitely not a good idea to wrap people in cotton wool by the government taking on the combined role of mum and dad property developer and loan guarantor. That’ll only make people more helpless.